Why Banning Hosepipe Use is a Poor Solution to a Water Shortage - Article Example

Microeconomics Article Analysis Smallest U.S. Cattle herd in 60 Years May Raise Beef Prices According to Davidson fromUSA Today, shortage of cattle increases prices of beef on the American market. Davidson cites the Agriculture Department claiming that at the beginning of 2012 there were 91 million heads of cattle in the United States, which is the lowest level since 1952. As a result, prices will increase by additional 4 to 5 percent from a 10 percent increase in 2011. Some estimate that the prices could increase by additional 10 percent, as was the case in 2011. Causes of the price increase, according to Davidson, are corn price increase, drought, and a rising demand for American beef in Canada and overseas. However, as consumers face 8.5 percent unemployment nationwide, domestic demand is fragile, which puts additional burden on end sellers of beef, who face a decrease in livestock, and a decrease in demand. This article sheds light on workings of open economy with regard to one industry. First, though supply of beef has decreased, there is a rise in demand for it abroad, which increases the price of beef. However, a decrease in domestic demand offsets some of that increase in price. Thus, the demand for beef is not completely price inelastic. Consumers have substitutes such as pork and lamb, and so most likely do not see beef as a necessity. In short, supply of beef shifted out to the left, and demand shifted out to the right, causing a substantial increase in price. However, some questions have not been answered by this article. First, how are meat packers and retailers affected? Since beef prices have increased, it must be that consumers are switching to new goods, or simply consume less beef. This issue is not resolved. There is only a statement that consumption has decreased overall, for all goods. Secondly, how do meat packers suffer, when exports have increased, and foreign customers are willing to pay a higher price, since higher price in the US still implies a lower domestic price abroad? Retailers in some cases have subsidiaries abroad, and thus can also export beef there. It seems that there is an overstatement present with regard to losses of meat packers and retailers. Secondly, how does a rise in corn prices affect other products such as pork? Very little is mentioned of livestock that demand similar type of animal feed as livestock. Economic Pie According to Sumathi from the Wall Street Journal, owners of the 2 Bros. Pizza Chain are experimenting in East Village in New York City with quality and prices to determine customer tastes and willingness to pay. Their pizza is known for its $1 a piece price. However, now owners have offered two different prices. In one pizza store they offer a larger pizza with of a much higher quality for $1.50, whereas in another, just a few meters away, the price has remained at $1 apiece. Though some customers are delighted, others criticize this decision by claiming that $0.5 increase is not indicative of a large increase in quality. However, the experiment is a part of a larger price war in the area, where pizza sellers lower prices to as low as 75 cents. Some, however, lose in the turf war and return to original prices. In some cases, the owners of 2 Bros. Pizza Chain must subsidize their losses with gains in other products, such as chicken. Market for pizza in New York City is an example of perfect competition with no barriers to entry. Each pizza place owns only a small share of the entire pizza market and so cannot dictate higher prices. As a result, the pizza houses fight for a larger share by innovating and decreasing prices. The place being able to produce at the lower cost keeps lower prices, unlike those with higher costs, which can engage in a turf war for a limited amount of time. The dynamics of the turf wars indicate that in perfect competition, each pizza place produces where its profits are zero. 2 Bros. owners do this by compensating for losses with profits in another part of sales. Overall, their profits are thus most likely zero. However, how does quality of the higher price pizza places affect the 2 Bros. Pizza Chain? One pizza place, as mentioned in the article, charges $2.99 apiece. However, they remain in business, despite such a high price. Thus, there must be two submarkets for pizza: one low end and the other high end. The 2 Bros. Pizza Chain appears to be low end, trying to tap into the higher end consumers, while also retaining the low end. Banning Hosepipe Use is a Poor Solution to a Water Shortage According to the Economist, the UK banned this year use of any exterior watering. The fine for not following the law is $1,600. The cause of this legislation is water shortage across the country due to dry seasons. However, the ban does not aim to ban water use, which according to the author of this article, is a mistake in the legislation. As a result, the authors argue the situation will be as in 2006, when two in seven persons disobeyed the law. Moreover, the authors argue that the law of demand and supply is disturbed in this act, as consumers willing to pay the most for water will not get it. Instead, water is rationed off. As a result, consumers go around the law by finding loopholes. Health is one of the main concerns, so consumers power water their lawn in order to destroy dangerous moss, or they use goldfish as an excuse for a fountain. However, other solutions might be more rational, such as rewards for saving water to farmers and intense water users, and on the other hand, higher prices to consumers willing to pay more to consumer more. Another solution, which authors seem to favor, is to install water meters in every house and so measure their water consumption and price it accordingly. This article discusses in an excellent way disruption of the law of supply and demand. Instead of installing water meters and using them to oversee water usage so that more intense consumption can be charged more, the government allocates water to everyone equally. However, no consumer values water equally. Moreover, no consumer needs an equal amount of water to other consumers. As a result, the government fails to take into consideration the consumer surplus, which is the difference between the value consumers are willing to pay and the price they pay for that particular product. The question the article never addresses is how high will the losses to the government be? The consumers find ways to go around the law. However, the government then needs to enforce this law by overseeing the consumers. Police will most likely need to patrol residential areas. The cost to the government will be high. As a result, the money lost in this ban could have been invested in water purification and increased water supply. Oil Prices Stay Steady despite Mideast Conflict According to Krauss from the New York Times, oil prices in the United States are lower than they were a year ago, not taking into consideration the East Coast, which was affected by the Hurricane Sandy. First, demand has decreased in the United States by 1.5 percent in 2012. Secondly, supply has increased domestically and in Libya and Iraq, despite the fact that supply from Iran decreased due to sanctions. Thirdly, consumers are substituting away from oil into more efficient energy sources. Globally, however, prices have increased slightly and vary with instability in the Middle East. Global oil prices depend on the events in the Gaza Strip, as Iran and the Lebanese Hamas are allies of Palestine. If a conflict in the Gaza Strip escalates and Iran intervenes by cutting off the Hormuz Strait, at least one fifth of world’s oil supply will be destroyed. Global prices will increase, according to Krauss. This article very clearly analyses the law of supply and demand, globally and domestically. Domestically, increased supply decreases prices by shifting the supply curve out, whereas a lower domestic demand against decreases prices by shifting the demand curve in. As a result, at every level of demand or supply on the new curves, prices are lower than they were a year ago. Globally, the crisis in the Middle East decreases supply. While demand has also decreased globally, it seems that supply variations are larger. Several questions remain unanswered. The question remains whether domestic producers can substitute for Middle Eastern oil in an event of a major crisis. Likewise, can domestic consumers decrease their demand enough to offset a decrease in global supply? In the long run perhaps, but in a year or two most definitely not, as this year demand decreased by only 1.5 percent, which is a small number. Moreover, nothing is mentioned of where prices of oil in New York City stand now, and where they would have been were it not for the increase in domestic supply? The analysis above predicts that prices in New York City nowadays are lower than they would have been in absence of lower prices. Thirdly, global supply increased due to Iraq and Libya, and demand decreased. Thus, do prices fluctuate due to speculations about the conflict in the Gaza Strip? The article fails to explain properly the effects of speculation. Works cited Davidson, Paul. Smallest U.S. Cattle Herd in 60 Years May Raise Beef Prices. USA Today, 29 January 2012. Web. 22 Nov. 2012. . Krauss, Clifford. Oil Prices Stay Steady despite Mideast Conflict. The New York Times, 21 Nov. 2012. Web. 22 Nov. 2012. < http://www.nytimes.com/2012/11/22/business/energy-environment/despite-the-rise-in- mideast-violence-oil-prices-stay-steady.html?ref=economy&_r=0 >. Sumathi, Reddy. Economic Pie. The Wall Street Journal, 28 Sept. 2012. Web. 22 Nov. 2012. . The Economist. Banning Hosepipe Use is a Poor Solution to a Water Shortage. The Economist, 14 Apr. 2012. Web. . Read More